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Positives come from improving domestic inflows and non-core divestment

LT’s consolidated 2QFY26 PAT was largely in line with our estimate, despite a revenue miss of 5%, mainly due to lower-than-expected revenue from core E&C. On the positive side, a sharp outperformance was seen in order inflows for the core E&C, which stood at INR968b vs. our estimate of INR722b, and EBITDA margin improved by 20bp YoY. NWC and RoE continued to witness improvement YoY. Order inflow mix was fairly diversified across domestic and international. Order prospect pipeline is up 29% YoY at INR10.4t for remaining 6MFY26 and the company has maintained a win ratio of 19-20% in 2Q order wins. We had highlighted in our previous result update (Link) that with the current win rate, LT can comfortably exceed its order inflow growth guidance of 10%. Management, during the call, has given the guidance of order inflow growth of far more than 10%, revenue growth of 15% and EBITDA margin of 8.5% for FY26. LT has reached an in-principle understanding with Government of Telangana to divest its stake in Hyderabad Metro, which we believe is a big positive. Revival in domestic order inflows and non-core asset divestment should lead to valuation re-rating for the stock. We tweak our estimates to factor in 1HFY26 performance of core business and IT subsidiaries and arrive at a revised SoTP-based TP of INR4,500 (INR4,300 earlier), based on 28x two-year forward earnings for core business and a 25% holding company discount to subsidiaries.

In-line PAT

On a consolidated basis, revenue grew 10% YoY to INR680b, while EBITDA rose 7% YoY to INR68b for 2QFY26. Margin was down YoY at 10.0%, while PAT increased 16% YoY to INR39b (in line with our estimate). For core E&C, revenue came in at INR490b (up 10% YoY), 7% below our estimate mainly due to slightly weaker execution in domestic markets and in the infrastructure segment as execution of water projects remained slow. International execution increased 24% YoY. EBITDA growth stood at 16% YoY, while EBITDA margin expanded 20bp YoY to 7.8%. NWC-to-sales ratio stood at 10.2% and RoE improved to 17.2%. Consolidated inflow increased 45% YoY to INR1.2t, while core E&C order inflow grew 54% YoY to INR968b, driven by both domestic (+41% YoY) and international geographies (+62% YoY). Thus, the core order book grew 30% YoY to INR6.7t. The international segment now forms 49% of the total order book. Within international, 84% comes from the Middle East

Opportunities in domestic markets

LT is witnessing improvement in order inflow prospects from domestic markets. Over the next 2-3 years, the company is eyeing opportunities worth 10-15GW of thermal power projects, along with opportunities from nuclear and hydro power, strong inflows from buildings and factories, particularly from real estate, and opportunities from transportation infra, metals and mining, as well as defense. We expect these opportunities to bring improvement in domestic order inflows for the company over time. LT is going slow on water projects on account of payment delays. Water segment currently forms 7% of the total order book.

International geographies offer strong prospects on renewable side

International inflows for LT remain strong across infrastructure and energy segment. LT remains focused on projects across geographies like Saudi Arabia, Kuwait, Qatar and UAE, driven by diversification into renewables and gas-to-power projects. During the quarter, the company secured multiple large EPC orders in Saudi Arabia and the UAE across onshore gas, offshore structures, and energy infrastructure

In-principle understanding to divest stake in Hyderabad Metro

LT has reached an in-principle understanding with Telangana govt to divest its stake in Hyderabad Metro and it plans to conclude this transaction by 4QFY26. Under the arrangement, the entire debt of INR130b of Hyderabad Metro would be taken over by SPV floated by Telangana govt and LT will receive an equity of INR20b vs. its adjusted equity of INR10b (INR75b actual equity adjusted with accumulated losses of INR65b in Hyderabad Metro). Divestment of this stake would reduce the debt and interest burden from the consolidated financials.

Expanding into new-age and technology-driven sectors

LT is steadily diversifying into new-age sectors aligned with global sustainability and technological trends. Under its Lakshya 2031 roadmap, the company has identified electronics manufacturing, renewable energy, and semiconductors as key growth pillars. In renewables, LT signed an MoU with Etochu Corporation of Japan for a 300ktpa green ammonia project at Kandla, Gujarat, marking its entry into large-scale green hydrogen and ammonia production. It is also executing the EPC scope for the Yanbu Green Ammonia project in Saudi Arabia, covering solar, wind, and battery storage systems. In semiconductors, its subsidiary L&T Semiconductor Technologies acquired design assets and IP from Fujitsu General Electronics, enhancing its expertise in power modules and advanced chip design while partnering with IISc Bengaluru to establish a national 2D innovation hub for next-generation semiconductor research. These initiatives demonstrate LT’s transition from a conventional EPC company to a technology-driven engineering leader with a growing footprint in green energy, electronics, and digital infrastructure.

Strengthening aerospace capabilities through AMCA program

LT has formed a consortium with Bharat Electronics (BEL) for the AMCA program of the Indian Air Force. The consortium’s scope of work includes development of the prototype airframe, jigs and fixtures, system integration, and flight certification for the next-generation stealth fighter. The shortlisting of eligible bidders is expected by 3QFY26, followed by the issue of the RFP in 4QFY26, and award of the prototype contract by 4QFY27. The prototype delivery and test flight are planned for FY29-30, after which serial production is expected to commence. LT’s prior experience in fabricating critical structures and subsystems for the light combat aircraft (LCA) program, along with its advanced manufacturing and system integration capabilities, provides a strong foundation for its participation.

Valuations and view

At the current price, for core E&C, LT is trading at 30x/25x/21x P/E on FY26/27/28E earnings. We tweak our estimates to factor in 1H performance for the core business as well as the IT companies. We thus expect core E&C revenue/EBITDA/PAT to grow at a CAGR of 16%/18%/22%. We value the company at 28x P/E two-year forward earnings for core business and 25% holding company discount for subsidiaries. We maintain BUY with a revised TP of INR4,500 (INR4,300 earlier). Our SOTP revision takes into account the revised valuations of subsidiaries.

Key risks and concerns

A slowdown in order inflows, delays in the completion of mega and ultra-mega projects, a sharp rise in commodity prices, an increase in working capital, and increased competition are a few downside risks to our estimates.

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